New York Pushes Crypto Licensing Rules to Curb Unlicensed Operations

Criminal Penalties Scale with Transaction Volume

The legislation establishes four penalty tiers tied to transaction thresholds. Baseline unlicensed activity qualifies as a Class A misdemeanor regardless of volume. Processing $25,000 or more within 30 days, or $250,000 within one year, triggers Class E felony charges. The penalty escalates to Class D felony at $50,000/30-day or $500,000/annual thresholds, and reaches Class C felony at $100,000/30-day or $1 million/annual volumes.

Class E felonies in New York carry maximum sentences of four years imprisonment, while Class C felonies can result in up to 15 years. The bill applies to five categories of virtual currency activity: receiving or transmitting digital assets, providing storage or custody services, buying or selling virtual currency, operating exchange services, and administering or issuing tokens.

BitLicense Requirement Becomes Criminal Standard

Under current New York Department of Financial Services regulations established in 2015, crypto businesses serving New York residents must obtain a BitLicense or operate under a limited purpose trust company charter. The existing framework treats non-compliance as a regulatory matter subject to cease-and-desist orders, fines, and civil penalties. The CRYPTO Act would reclassify these violations as criminal offenses prosecutable by district attorneys.

The bill takes effect immediately upon enactment if passed, with no grace period for existing operators to achieve compliance. This creates potential retroactive liability exposure for businesses currently serving New York customers without proper licensing.

Aligning with Federal Money Transmission Laws

District Attorney Bragg stated the legislation brings New York in line with other states that already criminalize unlicensed crypto activity and parallels federal statutes that treat unlicensed money transmission as a criminal offense. Federal law under 18 U.S.C. § 1960 makes operating an unlicensed money transmitting business a felony punishable by up to five years imprisonment.

The CRYPTO Act differs from pending federal legislation like the Clarity Act, which focuses on establishing regulatory jurisdiction between the SEC and CFTC rather than creating criminal enforcement mechanisms. New York’s approach prioritizes enforcement over regulatory clarity.

Industry Concerns About Scope and Definitions

Crypto industry representatives have criticized the bill’s broad language, arguing that terms like “receiving,” “transmitting,” and “administering” virtual currency lack precise definitions. Critics contend the vague terminology could capture software developers, node operators, or DeFi protocol contributors who facilitate transactions without operating centralized businesses.

The Blockchain Association and Chamber of Digital Commerce have not formally commented on the New York proposal but have opposed similar state-level criminalization efforts in other jurisdictions, citing concerns about regulatory clarity and economic competitiveness. New York’s existing BitLicense framework has been criticized for driving crypto businesses to relocate to states with less stringent requirements.

Legislative Status and Outlook

The CRYPTO Act remains in committee with no scheduled vote. New York legislative sessions typically run January through June, though the bill could carry over to subsequent sessions if not advanced. The proposal requires passage in both the State Assembly and Senate before reaching Governor Kathy Hochul for signature.

Historical patterns suggest uncertain prospects. New York has introduced multiple crypto regulatory bills in recent years with few advancing beyond committee stage. The state’s 2014 BitLicense regulations took over two years to finalize after initial proposal, demonstrating the extended timelines typical for significant financial services legislation.

For businesses currently operating without New York licensing, the bill’s committee status suggests monitoring rather than immediate operational changes. However, the proposal’s introduction by prosecutors and legislators with enforcement backgrounds indicates sustained regulatory pressure on unlicensed crypto activity regardless of the bill’s ultimate fate.